Should you ditch paper share certificates for an online account, even if it comes with a cost and loss of rights?

Millions of people own shares in the form of certificates – paper proof of their fractional ownership of the company they have invested in.

Certificates provide comfort because they display your name and can be filed away safely at home. Estimates suggest there are around 15 million held by private shareholders.

But owning more than a handful can become unwieldy – and there is a risk they can be lost, damaged or stolen.

A deadline to remove share certificates for new companies as early as 2023 will add pressure on shareholders to enter the electronic age

Trade them in and reluctant stockbrokers will usually charge more for the privilege, sometimes three times the cost of electronic dealing. Plus there are time delays while they are posted and the deal is completed. The headache can grow when someone dies and leaves a pile for those left behind to sort through.

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HOW THIS IS MONEY CAN HELP

While the word calls to mind Dr Who and the Daleks, it really means opting instead for ‘nominee’ accounts with online stockbrokers.

Mark Taylor, of Selftrade Equiniti, says: ‘The reason the uptake is far slower than for other online financial services is investors like to own something physical.’

But a deadline to remove share certificates for new companies as early as 2023 will add pressure on shareholders to enter the electronic age.

Moving shares out of paper format into an electronic one involves putting them in nominee accounts. You are still the legal owner but your name does not appear on the firm’s share register.

Justin Urquhart Stewart, co-founder of wealth manager Seven Investment Management, says: ‘Share certificates used to be pretty and collectable. Now they are plain and a nuisance with the potential to grow into an administrative burden.’

Investors also have to keep up to date on what is happening with the shares. Urquhart Stewart says: ‘Companies change name, merge, and even dissolve. You need only look at the changing face of the high street to know it is not just esoteric companies that suffer such a fate.’

He says: ‘Investments can be confusing enough without paper being involved. As the paperwork mounts up, so too does the potential to lose sight of important tax allowances such as Isas.’

Holding shares in nominee accounts used to mean shareholders losing certain rights, including voting at annual general meetings – and receiving any perks. But now brokers often allow investors to keep these rights.

If you stumble across a pile of certificates the options are either to wade through them yourself and contact registrars to check their validity, or ask a financial adviser or stockbroker to help.

Experts at Seven regularly help people struggling with such a challenge, including an elderly widow who found 80 paper share certificates in her husband’s files.

Her financial planner – Ian Morrison of Morrison Personalised Wealth Management in Linlithgow, West Lothian – says: ‘The husband had kept hold of certificates that were no longer valid, making it difficult to work out which ones were genuine, what they were worth and how much tax might be due.

‘The wealth managers did the spadework and now we have assembled a more tax-efficient portfolio for the future.’

HOW TO SELL PAPER SHARES

Watch out for the extra costs in selling paper shares. Banks or stockbrokers may charge a fixed fee plus dealing commission or a percentage charge. For example, Halifax Share Dealing charges 1.25 per cent or a minimum £25 (maximum £125).

One of the cheapest is online broker Sharedeal Active at £19.50 per holding. At the other end of the scale is TD Direct, which charges £50 plus its usual trading commission for one-off deals of £12.50. This compares with as little as £6 for trading electronically-held shares.

You can pare costs by transferring certificates into an online nominee account before selling. Most brokers do not charge for the transfer – then you can sell them at the broker’s usual dealing rate.

Where did I put it? My costly mistake

Losing paper share certificates can be expensive, as I have learnt to my cost, writes Sally Hamilton.

I bought £750 of Royal Mail shares four years ago and intended to hold them in the company’s nominee account with Equiniti Shareview.

But instead I received a paper share certificate and now I cannot find it.

To get a replacement I can use a telephone express service. This costs £65.32. (For holdings worth £1,000 to £5,000 the fee is £77.18. For £5,000 to £10,000 it is £95.28.)

If I were then to sell my shares via Royal Mail’s arrangements that would cost an extra £45 – £110.32 in total. At the last count my shares were worth £130 more than I paid for them. That would give me around £20 profit (ouch). Alternatively, I can pay Royal Mail £65.32 for a new certificate and sell the shares through another broker. Or sell via Royal Mail’s service without obtaining a new certificate – costing £50 plus 1.75 per cent, again roughly £65.

What will I be doing today? Turning over the house until I find that paper certificate.